Value Invest London

October 2013

Warren Buffett on the irreversible nature of pension plan promises
This is a wonderful memo written by Buffett in 1975 to the Washington Post Chief Executive Katharine Graham with advice on the pension plan (which is now one of the few with a surplus). It captures much of Buffett’s often quoted views on market behaviour and how to look at stocks.  It ends with a great if somewhat understated quote: “A mildly non-conventional investment approach, emphasizing a business approach to security selection, gives some opportunity for long-term results slightly above average without corresponding increase in investment risk”.

Value Investing 101
This article, written by Simon in July, was recently published in Share magazine. The article was written for a retail investing audience and attempts to define what is and is not value investing. For regular readers of the Value Investor Digest, the article will provide nothing new although the precise boundaries of value investing are often debated. ‘“If you are holding a stock and its price drops sharply, is your instinct to sell the stock”? A value investor will always have the opposite instinct’. Simon concludes that maybe this behavioural trait is the simplest test for whether you are a value investor.

Screening for value
This Value Institute article focuses on the debate over whether the best source of generating good investment ideas is screening the market, or to take a more Buffett-like qualitative approach. In the article, the author recounts a recent conversation he had with a proponent of the screening approach: “I still can’t see how it’s possible to whittle down your opportunity set to the one or two stocks that you might buy in a year [without screening]” He’s married, so I retorted: how did you whittle down all the potential girls in the world and end up with your wife? The answer of course is that he didn’t use anything like a screen, rather he simply searched for good characteristics in a partner and when he came to one he loved, he ‘bought’.”

Has Momentum Investing lost some momentum?
This FT article ponders whether the recent poor performance of some trend following funds is a permanent change, or whether the current investing climate has only distorted some of the behavioural characteristics which have led to prior success. The author concludes that it is unlikely that momentum investing will be a failed strategy long-term, as the human traits that cause trend following to be successful are deeply ingrained within the behaviour of most market participants. He goes on to suggest that one answer is to use both a value strategy and a momentum strategy within your portfolio.

How the economic machine works
Ray Dalio, founder of Bridgewater Associates, provides this simple but practical economic template which he says has helped him to “anticipate and side-step the global financial crisis and has worked well over the past 30 years.”

…Yours Truly, Dan Loeb
“Since you ascended to your current role of Chief Value Destroyer, the shares have dropped over 45 per cent”, is one Dan Loeb line detailed in this FT article, which is an entertaining look at some of the more pointed comments Dan Loeb has made in his publicly communicated letters to CEO’s of  companies he sees as under managed.  There has been a rise in recent years in the number of value investors who have become activist, although Dan Loeb is certainly renowned for the ability to vent his objections in a manner which gets straight to the point.

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    Paul Scott, Stockopedia
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    Jonathan Ruffer, Ruffer LLP
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    Nick Train, Lindsell Train
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    Hassan Elmasry, Independent Franchise Partners
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    Nate Dalton, Affiliated Managers Group
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    Gary Channon, Phoenix Asset Management
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    Richard Oldfield, Oldfield Partners
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    Jon Moulton, Better Capital
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    Tim Green, Private Investor
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    Anthony Bolton, Fidelity
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    Mason Morfit, ValueAct Capital
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    David Shapiro, Willis Towers Watson
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    Don Yacktman, Yacktman Asset Management
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    Leon Boros, Equity Strategies